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Radio frequency Identification (RFID) has been hogging the headlines lately ever since Wal-Mart made public its demand that all of its top 129 suppliers be outfitted with RFID tags by the beginning of 2005. Although many companies may be ready to dress the technology up in a blue leotard and red cape, two industry observers are saying that RFID alone cannot save the day.

RFID is much like a super-sized version of the familiar bar code data collection technology. It uses electronic tags to store identification data and a wireless transmitter gun to collect it. Unlike the more traditional bar code, however, the RFID tags can hold much more information than just a product or account number. Although having the means for this type of massive data collection may sound like a great opportunity for businesses, one analyst said there really isn’t anyone making money with the technology just yet.

It has not happened that the broad use of RFID has been able to transform business processes, explained Jeff Woods, a New York-based analyst at Gartner Inc. He said the people who are reading about the technology have a tendency to oversimplify the implementation or the business process challenges and are now starting to come to grips with the fact that RFID is a difficult technology to install at this point, and is “probably the most over hyped technology that we are talking about right now.”

Woods does believe, however, that RFID is a “big transformative technology” and sees a future where it has definite potential for businesses, but added that for now, companies should remain patient.

“Not over the next two or three years but over the next 20 years there is going to be a company in the Fortune 50 because of RFID, which is a very powerful statement, [because] who doesn’t want to be in the Fortune 50?” Woods noted. “This is the kind of technology [like] built to order for Dell. It changes the industry, it changes the way that you compete with other people.”

The magical areas

When talking about RFID today, Woods said that businesses are usually referring to the technology being used in consumer goods and retail supply chains like Wal-Mart. He said that the department store giant would be looking to save money in three “magical areas” with RFID: reduce the amount of inventory, reduce labour and improve reliability.

Woods said that RFID is not an incremental technology and can’t be thought of as “a bar code on steroids” because organizations will simply end up with projects that can’t justify themselves. At the end of the day, he added, RFID technology is much more expansive than its traditional counterpart.

“In order to justify the difference between a one- or two-cent bar code and a 40- or 50-cent RFID tag, you have to have radically different business processes,” Woods said. “If all I do is put RFID tags on everything that I’ve got and still walk around and do things in the exact same way, I didn’t save any money. [ellipse] RFID tags aren’t magical.”

Jonathan Loretto, the global technology leader on RFID at Toronto-based consulting firm Cap Gemini Ernst & Young, agreed with Woods about the lack of magical powers that RFID technology alone contains. He added that the technology is being painted as a “great panacea” that will help companies reduce costs but noted that “RFID within itself cannot do that, it is only a tool.”

Loretto said that RFID can cost a company that doesn’t put in the proper research tens of millions of dollars every year from its profit margins and companies will soon realize that they have been spending money year after year and having nothing to show for it.

Companies that are going into the technology blind will end up doing RFID badly, Loretto said, adding that all they will end up with is expensive storage space.

“RFID is more expensive, you have to find the value in your organization,” Loretto warned. “Slap and ship doesn’t work.”

He added that although he can’t see what the possibilities are with RFID today, he does know that they exist. He noted that the technology reminds him of the “faith purchases” which were made when the PC was first introduced. Perhaps people then didn’t see the need for the PC because typewriters were available, Loretto said, adding that today the money generated through PC sales is huge.

Group formed

As with many new technologies, a group has formed over the past several years to develop standards for RFID.

EPCglobal has been working with the Auto-ID Centre at the Massachusetts Institute of Technology (MIT) for the past four years to bring the technology through pilots and prototyping. EPCglobal Canada is the infrastructure that will be managing the rollout and commercialization of RFID tags for the Canadian industry, according to Art Smith, EPCglobal Canada president and CEO.

In order to get RFID technology to work, Smith said there are two key elements that have to happen.

“One is that the standard becomes open, not proprietary, so that people can build applications around it so everyone has access to it. And two is that it stays interoperable,” Smith noted.

“[It is our goal] to design an RFID tag [to] be read by all readers and if you ship this product across borders or across into different channels that it can be read and manufacturers aren’t faced with different tags for different customers. The concept we are dealing with here is that if we don’t have a single standardized solution that can be deployed, the investment needed to drive down the cost for this technology won’t come,” Smith said.

He added that it is the job of EPCglobal Canada to ensure that the requirements of the Canadian industry users are properly reflected in the standards. They also help solutions providers in Canada to gear up, from a manufacturing point of view, to develop a technology solution allowing to compete on a global basis and ultimately with a deployment of the technology.

According to EPCglobal Canada, there is currently one RFID standard, version 1.0, that has been published and another is waiting for approval.